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Photo Gallery Americans will soon receive checks as part of the economic stimulus package passed by Congress. While the amount received will vary, the money is a great chance to secure your family’s finances.
Pay off debt
While there are ways to prioritize all your debt effectively, your stimulus check probably won’t pay all your bills. The key is to make sense of your debt, factor in your financial goals and needs and then consider the following options.
Use for high-interest credit cards
Paying credit cards first makes sense because they cost so much over time. Using the financial calculators at PioneerMilitaryLoans.com, you can see the long-term costs of making minimum payments (all are based on 17 percent interest):
•$1,000 would take 84 months to pay and cost $500 in interest.
•$2,500 would take 119 months and cost $1,300 in interest.
•$5,000 would take 145 months and cost $2,665 dollars in interest.
Even sending a little can make a big difference — if you had a credit card with $1,500 and an interest rate of 15 percent, it would cost you $619 in interest if you paid the minimum. But sending $600 extra and reducing your balance to $900 would only cost $347 in interest. By sending the $600 you put $272 back into your pocket.
Pay off smaller debts
How to do so will depend on the size of your check:
•If it’s only $300, then start at the smallest bill and work your way up.
•If it’s a higher amount (anywhere from $600 to $1,200, plus another $300 per child), then start with the largest bill and work your way down.
The goal is to eliminate the nickel and dime bills eating your monthly income.
Put it in savings
An emergency savings account is crucial to your financial success and this is a great time to start one. Having between $500 and four months pay is recommended, but putting even $300 in an easily-accessible savings account is a good start. If you add to it each month, you can reach $500 in savings in no time, and save two months’ salary rather quickly.
Other options and considerations
•Add to retirement — You can add it to your 401(k), 403(b), Thrift Savings Plan, or individual retirement account. Annual contribution limits still apply depending on the account.
•Save for a big purchase — Is your car ready to be replaced? Looking at new furniture in the near future? Put the money aside to offset the cost of the purchase or use as a down payment.
•Watch for scams — The Internal Revenue Service has warned of e-mail and phone scammers offering “advance payments” for your stimulus check, only to steal the victim’s identity. The IRS does not offer any such plan, and does not send unsolicited e-mails to anyone.
•Do preventative maintenance — Get some smaller things done you have put off (a few needed but non-critical car repairs, for example), since putting it off even more could lead to bigger problems later.
While these suggestions may seem to go against the intent of the plan (create spending), securing your family’s financial future will actually be an important factor in the nation’s economic success. This is because reduced debt and increased savings creates economic stability for the long haul, rather than just in a short spurt.
So while spending a bit of the money on yourself ($70 for a nice dinner, or $20 on a DVD) won’t ruin your finances, taking care of your longer-term needs and future financial security have been proven to work time and again, no matter the economic conditions.
Stack, chief financial officer for Pioneer Services, has more than 20 years experience in the financial services, leasing and media sectors. A graduate of Kansas State University, Stack is a member of several professional and military organizations, including the Central Exchange and Financial Executives International and the Association of the United States Army.
